By Zac Masters | March 1, 2023
You may have seen a bit about superannuation changes in the news lately. Of course, whenever there are changes to the superannuation system, they rightly are front of mind in the news cycle. This week Prime Minister Anthony Albanese and treasurer Jim Chalmers announced some changes. In this blog, I’ll explain the changes, why they are doing it, and what it means for you.
On Tuesday, Prime Minister Anthony Albanese announced that the government would look to tax earnings from superannuation accounts above $3 million at a rate of 30 per cent. Currently, the government charges a 15 per cent tax on superannuation fund earnings whilst in the accumulation phase.
This increased rate of 30 per cent will apply to accounts with $3 million or more in the accumulation phase of superannuation, double the current 15 per cent rate. There will be no changes to the tax situation on accounts in the pension phase with a balance of up to $1.7 million, which are currently tax-free. The government’s proposal does not change the amount your super is taxed when it is contributed by your employer or you before tax.
Treasurer Jim Chalmers also stated that the $3 million amount would not be indexed and said, “My intention is not to index it because we need to make superannuation more sustainable over time”.
Following industry consultations, the government would also apply the change to defined benefit payments.
Cabinet agreed on Tuesday that the new tax rate would begin on the 1st of July, 2025.
Firstly, the government said the change would net them approximately $2 billion annually, which is $2 billion back into the budget. The tax concessions for superannuation cost the budget about $51 billion in forgone revenue each year. Jim Chalmers mentioned that on its current trajectory, the foregone revenue would cost the budget more than the aged pension within 30 years.
The government has also agreed to start these changes in 2025, likely after the next federal election, as they promised during the last federal election that there would be no changes to super. However, the changes will be added for future projections in upcoming budgets.
The likelihood of these changes affecting you is small. Only 80,000 superannuation accounts have over $3 million, under one per cent of total super accounts. With this change not being indexed, there will likely be more accounts that fall into this category as super balances grow.
If you are one of the affected people, get in touch with your financial adviser and review what options are available to you, as having extra funds in superannuation may no longer be the best option when these changes come into effect.
These changes may also make you feel like superannuation contributions are no longer appropriate due to the potential changing tax concessions and what may happen in the future. Sometimes, when people hear about changes to superannuation, they can lose faith in the system. As always, if you need superannuation advice, or there are any changes you are unsure about, contact your adviser, or if you don’t have one, feel free to email me at zac@pekada.com.au.
Zac is a qualified financial planner at Pekada and host of the Wealth Collective Podcast. Living in Melbourne, Zac has six years of experience in advice and specialises in wealth accumulation and protection strategies. He loves to keep his finger on the pulse for the best strategies for wealth accumulators looking to build and protect their wealth tax effectively. Zac has been featured as an expert in Money Magazine.